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E-Mail is Binding

In law, as in society at large, signing contracts on paper in ink (and maybe in triplicate) now seems to 20th century. If your reflex is still to regard e-mail communications as only informal give and take, think again. A recent case demonstrates that if the necessary terms for an agreement are present in e-mails, a bind agreement will result. If you don’t want that outcome, you are well advised to make it clear in the e-mail itself that no party will be bound until a final agreement is signed by all parties.

Eric signed an agreement to buy a truck stop. The agreement included a financing contingency and required Eric to make a large refundable deposit that would be held in escrow. When Eric could not secure the necessary financing, he terminated the purchase and sale agreement and asked for his deposit back. The owner declined, saying that Eric had broken the agreement in bad faith.

After Eric sued the truck stop owner in federal court and was hit with a counterclaim, the parties, through their attorneys, engaged in settlement negotiations by e-mail. Ultimately, Eric’s attorney accepted the owner’s settlement offer involving division of the deposit money between the parties. Eric’s attorney concluded an e-mail by saying, “To move this along, I will send you a draft settlement agreement (and other documentation) tomorrow.” The next day the owner’s lawyer replied in another e-mail, saying, “Glad we were able to get it done. Thanks.”

About a week later, when the settlement had been reduced to writing and was ready for signatures, the defendant owner of the truck stop was placed into receivership by a state court. The receiver refused to follow through with the settlement agreement. Eric went back before the federal court, where his motion to enforce the settlement was granted.

Rejecting a contention made by the defendant, the court ruled that because all of the material parts of a settlement had been set out in, and agreed to, in the exchange of e-mails, there was a binding and enforceable settlement, even though in their e-mails the parties had alluded to a later writing that would embody the agreement. When the parties executed that written agreement, they were merely “memorializing” the terms of the settlement, not creating them. The agreement was complete and binding when the attorney clicked “send” to exchange their last e-mails finalizing the settlement.

Actual resolution of legal issues depends upon many factors, including variations of facts and state laws. This post is not intended to provide legal advice on specific subjects, but rather to provide insight into legal developments and issues. The reader should always consult with legal counsel before taking action on matters covered by this post.